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A "nudge" in the wrong direction can be costly

Posted on 11 February 2020

We continue to see HMRC issuing so-called "nudge letters" to those with offshore interests as a result of the huge amounts of information received by them under the Common Reporting Standard (CRS) since October 2017.

These letters quite typically include a document entitled "Certificate of Tax Position" and ask the recipient to complete and submit this in respect of their offshore income, gains and assets.  If in receipt of one of these letters clients should check their tax position thoroughly and satisfy themselves that their tax affairs are in order.  The tax rules around offshore income and gains are complex and technical and an in depth review might be required, especially as the certificate contains a warning that completing a false certificate is a criminal offence and may lead to prosecution.  The wording on the certificate also states as follows "I have declared all my offshore income, assets and gains which are taxable in the UK."

It should be remembered that the annual tax return does not include the requirement for such a declaration.  Such declarations are normally reserved for documents such as a Certificate of Full Disclosure completed at the end of an investigation when there have been errors shown in a tax return.  The certificate also does not include important safeguards such as the definition of a time period to which it relates.

After reviewing matters and if there is nothing further to correct clients should be advised to respond to HMRC in a co-operative manner but without completing the non-statutory certificate.  A suitable letter should be sent instead.

If after review it is felt that there are issues to resolve with HMRC then careful consideration needs to be given to the most appropriate way to make a disclosure.  Given the "Failure to Correct" legislation there are penalty considerations to take into account.  In addition whether any failure needs to be disclosed under the protection of Code of Practice 9 (where conduct is viewed as fraudulent) should be considered at the outset to give the client the utmost protection and avoid the pitfalls of "falling into" a possible investigation with a view to criminal prosecution.

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